ABTRACTIn addition to expected efficiency gains, an increasingly important policy concern about deepening financial integration is whether it brings greater vulnerability to shocks. Conventional measures of financial integration do little to reveal this. This paper explores a different approach to measuring financial integration, highlighting interconnectedness in a network of financial flows. Applying an adapted version of eigenvector centrality, often used in network analysis, a new measure is developed to provide a more complete picture of how countries are embedded global and regional financial networks. Our measure reinforces the view of the United States and the United Kingdom as the ‘core’ in the global banking network, with all other countries scattered in the ‘periphery’ but it reveals some previously unseen patterns in Asia. With China rapidly integrating with the region, the Asian banking network increasingly resembles the structure of the global network, with a core and periphery. This is the beginning of essential work to discover whether such network structures pose an added threat of shock transmission around the region.

Professor Jenny Corbett has been Pro Vice-Chancellor (Research and Research Training) since late in 2012. She was previously the Executive Director of the Australia-Japan Research Centre, at the Crawford School of Public Policy from 2005 to 2012. She is also Reader in the Economy of Japan at the University of Oxford where she has taught since 1983, a Research Fellow of the Centre for Economic Policy Research (CEPR, London) and a Research Associate of the Centre for Japanese Economy and Business at Columbia University. She has a PhD in Economics from the University of Michigan. Her research centres on current macro-economic and financial policy issues in Japan, regional financial integration and trade in financial services. She has written on financial crisis and financial system design since the early 1990s, covering developments in Eastern Europe in the early 90s and Asia and Japan in the late 1990s. She has been a consultant to the Asian Development Bank, the OECD, the World Bank and the European Commission and has directed research projects for the Economic Research Institute for ASEAN and East Asia (ERIA) on economic policy issues in the East Asia Summit group of countries. She is a member of the Australia New Zealand Shadow Financial Regulatory Committee which comments on current developments in financial and monetary policy.